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The Australian Taxation Office (ATO) has highlighted three key areas for special attention this tax season where mistakes are commonly made: rental property deductions, work-related expenses, and capital gains tax.
The ATO is urging taxpayers and tax agents to take extra care when making claims in these particular areas and to review their records before lodging returns.
“Within these areas, we have identified common mistakes, and are particularly focused on addressing these and supporting taxpayers and registered tax agents to get their claims right this year,” ATO Assistant Commissioner Tim Loh said.
Rental property deductions
A recent review of income tax by the ATO revealed that nine out of ten rental property owners are lodging incorrect returns, or leaving out their rental income – despite 87 per cent using a registered tax agent.
Others are failing to make the correct property-related deductions, often over-claiming expenses or claiming for improvements to private properties.
The ATO warned it would crack down on interest expenses related to rental properties to ensure landlords are correctly allocating loan interest expenses between business and personal use.
“You can only claim interest on a loan used to purchase a rental property to earn rental income – don’t forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income,” Mr Loh said.
“We encourage rental property owners and their registered tax agents to take extra care this tax time and review their records before lodging their return.”
The ATO recently implemented a new residential investment property loans data matching program, which Mr Loh expressed was just “one example” of how the taxation office was helping Australians get their returns right.
With changes to work-from-home measures, the ATO has reminded taxpayers to avoid “copying and pasting” last year’s claims for work-related expenses.
Australians working from home are able to claim the actual cost of their expenses or the revised fixed rate method as long as they meet eligibility and record-keeping requirements.
But the ATO cautioned this must be evidenced through solid record-keeping.
“…Don’t be tempted to just copy and paste your prior year’s claims, we know a lot of people are working back in the office more compared to last year,” Mr Loh said.
“Keeping good records will give you the flexibility to choose the right method that suits your circumstances and gives you the best deduction this tax time.”
Capital gains tax
Capital gains tax (CGT) comes into effect through the disposal of assets such as shares, crypto, managed investments or properties, meaning taxpayers must calculate a capital gain or loss for each asset they dispose of.
“Don’t fall into the trap of thinking we won’t notice if you sell an asset for a gain and don’t declare it,” Mr Loh said.
Australians are exempt from paying taxes on their private residence. However, if the home has been used to produce income through renting or through other services, then CGT could apply.
The ATO said it was committed to supporting its taxpayers and recommended businesses employ a registered tax agent to avoid “burying their head in the sand.”
“We know many people are doing it tough this year, and we expect fewer people will receive a refund or may receive smaller refunds than they were expecting, and more may have tax debts to manage,” Mr Loh said.
